What Happens to Federal Benefits If You Get Divorced?
Over the past several decades, the rate of divorce has grown substantially. For instance, roughly 50% of married couples divorce in the United States today, putting the U.S. at the sixth-highest divorce rate in the world. These figures also tend to rise for second and third marriages, which have a 60% and 73% divorce rate, respectively. Getting divorced can span far beyond just the emotional aspect, though. Splitting from your spouse can also have a tremendous financial impact; in many cases, it could cause one or both ex-spouses to endure years of monetary hardship. Because employer-sponsored savings plans can frequently make up a significant portion of a couple’s overall assets, it is vital to understand how these funds, as well as other employee benefits like life and health insurance, can change following a divorce. This includes the employee benefits of federal employees (and their spouses) who are participants in the Federal Employees Retirement System (FERS) or the Civil Service Retirement System (CSRS). PSRE2022FedBenDiv | 2 psreducators.com • [email protected] • 888-919-3252
Divorce and Your Federal Employee Benefits What happens with federal benefits due to a divorce can be tricky if you participate in the FERS or CSRS program. One reason is that the federal law that governs these benefits can sometimes conflict with state law. When this occurs, though, it is the federal law that will prevail. As an example, several things can happen when dividing your federal retirement annuity upon divorce or separation from your spouse, such as: Dividing a refund of the contributions that were made when you leave federal service before retirement Permitting an ex-spouse to continue their health insurance coverage Requiring you to assign your life insurance Garnishing your federal annuity payments to cover alimony or child support Requiring certain distributions from your Thrift Savings Plan (TSP) account Federal Retirement Made Easy! LEARN MORE OR CALL 1-888-919-3252 Likewise, state court orders cannot affect several types of benefits that are payable under FERS and CSRS. For instance, under the private sector’s Employee Retirement Income Security Act (ERISA), a former spouse’s share of a retirement benefit can begin when the employee reaches the minimum retirement age (MRA), even if the employee is still working. But this is not necessarily the case with FERS and CSRS benefits. A court order cannot affect a federal retirement benefit until that benefit is actually payable. This means that the employee must be not only eligible for the benefit but must also be retired and have applied for the benefit. Similarly, the eligibility for children’s survivor benefits is governed by federal law. This means that divorce orders involving federal employee benefits must be crafted specifically to comply with federal law. In addition, the rules for the FERS and CSRS programs can differ regarding what happens to the benefits when a federal employee gets divorced. PSRE2022FedBenDiv | 3 psreducators.com • [email protected] • 888-919-3252
Federal Retirement and Divorce A court order following a divorce, legal separation or annulment of marriage can divide or apportion a federal annuity. This order must expressly direct the Office of Personnel Management (OPM) to pay a portion of the monthly benefit. Federal employment issues under the FERS and CSRS programs are governed by “spouse equity” provisions. This refers to the Civil Service Retirement Spouse Equity Act of 1984 whereby: “Certain former spouses of federal employees, former employees, and annuitants may qualify to enroll in health benefits plan under the FEHB (Federal Employee Health Benefits) Program.” Given this ruling, the former spouse of a federal employee is eligible to enroll in the benefits program under the spouse equity provisions if all of the following criteria are met: The enrollee and the former spouse were divorced during the enrollee’s employment or receipt of an annuity The former spouse was covered as a family member under an FEHB enrollment for at least one day during the 18 months before the marriage ended (note that this requirement may also be met when both the enrollee and their former spouse have FEHB enrollments) The plan enrollee’s former spouse is entitled to a portion of the enrollee’s annuity or a former spouse survivor annuity The enrollee has not remarried before they turn age 55 PSRE2022FedBenDiv | 4 psreducators.com • [email protected] • 888-919-3252
The spouse’s share of the federal annuity must be stated either as a(n): Fixed dollar amount Percentage of the annuity Amount that is determined by a formula with a readily apparent value Note that the amount may not exceed the money that is payable after the deductions are made for taxes and insurance. If a marriage is dissolved after a federal employee has retired, any elected survivor benefit will no longer be payable to the ex-spouse. However, a monthly survivor benefit would be payable to a former spouse after the employee’s death if the benefit is provided via court order or a new benefit election. In this case, though, the marriage would have to have lasted for at least nine months for a court-ordered benefit to be paid. Also, a retiring federal employee may voluntarily elect either a fully or partially reduced annuity to provide a former spouse with a survivor annuity. In this instance, however, if the federal employee is remarried, the election to continue payouts to a former spouse would require the consent of the new spouse. It is essential to remember that a former spouse annuity will stop the payouts if the federal employee’s former spouse remarries before they turn 55 and the employee and former spouse were married for at least 30 years. PSRE2022FedBenDiv | 5 psreducators.com • [email protected] • 888-919-3252
How Divorce Affects Federal Health Insurance Benefits In addition to federal retirement benefits, divorce can impact other FERS and CSRS-related coverage, such as federal health insurance. Former spouses who do not meet the criteria for FEHB coverage may continue coverage for three years from the date of the divorce under the Temporary Continuation of Coverage (TCC). TCC is a feature of the Federal Employees Health Benefits (FEHB) program that allows certain people to temporarily continue their FEHB coverage after their regular health insurance has ended. In this case, an enrollee’s former spouse would be eligible for TCC if they have been covered as a family member at some point during the 18 months before the marriage ends, provided that they do not meet the remaining requirements for coverage under the spouse equity provisions of the FEHB law because they: Remarried before reaching age 55, or Are not entitled to a portion of their annuity benefits or a survivor benefit based on their service. To avoid a break in health insurance coverage, an employee’s former spouse should consider enrolling for a temporary continuation of coverage, pending a decision on eligibility for coverage as a former spouse. The federal employee’s former spouse will typically lose coverage upon divorce, subject to a 31-day extension of coverage on the earliest of the following dates: The last day of the pay period in which the employee separates from service, unless they transfer, retires, or begins receiving worker’s compensation benefits The last day of the pay period in which the employee separates from service after they have met the requirements for an immediate annuity under the FERS MRA+10 provision and they postpone receipt of the annuity Federal Retirement Made Easy! 1-888-919-3252 LEARN MORE PSRE2022FedBenDiv | 6 psreducators.com • [email protected] • 888-919-3252
The last day of the pay period in which the employee changes to a position that is excluded from coverage (such as not being a citizen or national of the United States) The last day of the pay period in which the employee dies, unless they have a family member who is eligible to continue enrollment as a survivor annuitant The last day of the pay period that includes the 365th day of continuous leave without pay status or the last day of leave under the Family and Medical Leave Act, whichever date is later The last day of the last pay period in pay status, if they have not had four consecutive months of pay status after they have exhausted the 365 days continuation of coverage in leave without pay status The day that they are separated, furloughed, or placed on a leave of absence to serve in the uniformed services for duty over 30 days, provided that they elect in writing to have their employing office terminate their enrollment The date that is 24 months after the date of the individual’s separation, furlough, or leave of absence to serve in the uniformed services for active duty over 30 days, or the date of their entitlement to continued coverage ends, whichever date is earlier The day on which their TCC expires The last day of the pay period for which withholding was made when they are a temporary who is enrolled under 5 U.S.C. 8906a whose pay is insufficient to pay the withholdings, and they did not or could not choose a plan for which their pay would cover the premiums PSRE2022FedBenDiv | 7 psreducators.com • [email protected] • 888-919-3252
Concerning family members (or former family members), the enrollee’s family member’s coverage will terminate, subject to a 31-day extension of coverage, at midnight on the earlier of the following dates: The day that the enrollee deceases, their enrollment terminates (unless they die and have a survivor who is eligible to continue the enrollment) The day that they are no longer considered to be an eligible family member In the case of the latter, a family member will immediately lose coverage when: A divorce decree is final (according to state law) An eligible child reaches the age of 26 (unless they are incapable of self-support) A foster child marries or stops living with the enrollee in a regular parent-child relationship A step-child no longer meets the requirements for coverage It is important to note that an enrollee may not continue coverage for their spouse under their self and family enrollment under their divorce. The enrollee could be eligible for their own enrollment under the spouse equity or Temporary Continuation of Coverage (TCC) provision. When an enrollee cancels their enrollment, their family members’ coverage will terminate at midnight of the day the cancellation is effective, with no 31-day extension. Individuals who qualify as a former spouses must enroll for FEHB coverage in their own right and pay both the employee’s and the government’s share of the premium. Coverage is prospective from the first day of the pay period after the employing office has received all of the properly completed qualifying documents. PSRE2022FedBenDiv | 8 psreducators.com • [email protected] • 888-919-3252 WHO’S THE BEST FEDERAL RETIREMENT EXPERT? You Are! 1-888-919-3252 or call today! Click Here - Learn How!
FEGLI Federal Life Insurance If You Get Divorced The Federal Employees’ Group Life Insurance (FEGLI) program provides group term coverage to qualifying individuals. This program offers group premium rates (which are typically lower than individual rates), and the benefits are paid if the employee or a covered family member dies or becomes dismembered while insured. A federal employee or former employee, including an annuitant, may make an irrevocable assignment of their coverage under FEGLI to another person or a trust. Individuals who assign their FEGLI ownership will continue to be insured under the FEGLI coverage. However, they irrevocably transfer many of the attendant rights, benefits, and responsibilities to the assignee for their basic, standard optional, and additional optional coverage. Note that family optional insurance coverage cannot be assigned. Such assignments of FEGLI life insurance are often made to comply with the requirements of a court order upon divorce or for personal financial reasons. In many instances, a court will order a federal employee (or former federal employee) to name a former spouse as the beneficiary of their life insurance proceeds. It is important to note that an assignment will automatically cancel the prior designation of a beneficiary or beneficiaries. However, under the FEGLI law, an insured individual may change their beneficiary designation at any time, even if a court order directs otherwise. This is because the FEGLI law preempts state law (and in court orders based on state law) to the extent that it is inconsistent with the FEGLI life insurance contract. With that in mind, the law does not authorize the Office of Personnel Management (OPM) to enforce or comply with the provisions of a court order that directs OPM, a federal employee, or a former employee to assign FEGLI coverage. Instead, the law merely allows the employee or former employee to make an assignment of their FEGLI coverage if they choose to do so. Therefore, it is up to the court-designated assignee to ensure that the court order is enforced. In addition, if an insured individual owns more than one type of insurance coverage, they must assign all of the insurance, not just a portion of it. In addition, the insured may not name contingent assignees if the primary assignee predeceases them. Once the insurance has been assigned, the assignee to whom the insured transfers the FEGLI ownership may, for the insurance that is assigned to them: Designate beneficiaries Convert the insurance to an individual policy if the insured’s eligibility for group insurance ceases Cancel the insurance or reduce the amount of death benefit coverage PSRE2022FedBenDiv | 9 psreducators.com • [email protected] • 888-919-3252
The Effect of Divorce on Other Federal Employee Benefits Other federal employee benefits could also be impacted by the divorce of a participant and their former spouse. These can include: Federal Dental and Vision Insurance Program (FEDVIP) Federal Long-Term Care Insurance Coverage Flexible Spending Accounts (FSAs) For instance, in the event of a divorce, an enrollee may decrease benefits from the Federal Dental and Vision Insurance Program (FEDVIP) from the “self and family” option to the “self plus one” or the “self only” option. It is important to remember that if such a change is not made between 31 days before the divorce and 60 days after, it must wait until the next annual benefits open season. In this case, the higher level of premiums will also continue until the change has been implemented. A former spouse of the federal employee is not eligible for FEDVIP coverage unless they are separately eligible such as by: Being a federal employee Having no spouse equity, Temporary Continuation of Coverage (TCC), or right to convert to an individual policy through the FEDVIP program It is, however, possible for an ex-spouse to continue benefits through the Federal Long-Term Care Insurance Program (FLTCIP). In this instance, a former spouse who was enrolled in this program at the time of the divorce may keep the coverage by continuing to make the premium payments. Alternatively, a former spouse who was not covered at the time that the divorce took place will not be eligible to initially enroll afterward unless they are separately eligible (such as by being a federal employee as well). A legal separation or divorce is considered a “qualifying status event” in terms of the Flexible Spending Account (FSA) benefit. This means that changes may be made to allotments to these types of accounts. Qualifying status or qualifying life events, as defined by the IRS, include the following: Change in legal marital statuses, such as marriage, legal separation, divorce, or death of a spouse Change in employment status (for the federal employee, their spouse, and their dependents) that impacts the eligibility for health insurance coverage Change in the employee’s number of tax dependents Birth or date that a child is adopted (or placement for adoption) Death of the employee’s spouse or dependent Change in the eligibility of dependents (such as a child reaching age 13 and no longer being eligible under Dependent Care FSA, which is a pre-tax benefit account that is used for eligible dependent care services like preschool or summer day camp) Change in the child care or elder care provider or cost or coverage, such as a significant cost increase that is charged by the current provider or a change in the provider itself PSRE2022FedBenDiv | 10 psreducators.com • [email protected] • 888-919-3252
What Happens to Thrift Savings Plan (TSP) Funds Upon Divorce? If you are a federal employee, you may be a participant in the Thrift Savings Plan (TSP). This is one of the three components of the Federal Employees Retirement System (FERS). The other two are Social Security and the FERS Basic Benefit Plan, also known as the FERS Pension. The TSP is a “defined contribution” plan, meaning that the retirement income generated from a participant’s account will depend on how much the employee, and their agency, put into the account, as well as any earnings that are accumulated over time. When ready to begin taking retirement income from TSP funds, you can typically choose from various annuity options, including: Single life annuity with level or increasing payments Joint life annuity with a spouse that has level or increasing payments Joint life annuity with someone other than a spouse that offers level payments Different payment options may be chosen with the joint annuity options. These include the following: 100% survivor annuity – With the 100% survivor annuity, the amount of the monthly annuity payment to the survivor is the same as the payment that is made while both individuals are alive. However, the dollar amount of the monthly payment received while both recipients are still alive is typically less than it would be if the 50% survivor annuity option is chosen. 50% survivor annuity – With the 50% survivor annuity option, the amount of the monthly annuity payment to the survivor, regardless of whether the survivor is the TSP retiree/ participant or another individual, will be 50% of the annuity payment that was made while both individuals are alive. Divorce can impact the TSP annuity payments, though. For instance, a court decree of divorce, annulment, or legal separation could make an award from a participant’s TSP account to someone other than the participant, such as a former spouse. PSRE2022FedBenDiv | 11 psreducators.com • [email protected] • 888-919-3252
The Thrift Savings Plan (TSP) will generally honor such orders if they are issued in connection with such an action and comply with the TSP Board’s regulation. In addition, the TSP will also honor preliminary court orders for the purpose of freezing a participant’s account, as well as amendatory court orders that have been issued after such a decree. It is important to note that the TSP will not automatically follow the Qualified Domestic Relations Order (QDRO) because these apply to private-sector retirement plans, which are covered by the Employee Retirement Income Security Act (ERISA) of 1974. When the TSP receives a court order, the participant’s account is “frozen.” This means that the employee/ participant will not be allowed to withdraw from the account other than to meet certain mandatory IRS distributions, such as the Required Minimum Distribution (RMD), or to receive loans from the account. However, all other account activity is permitted. Suppose the Thrift Savings Plan (TSP) authorities determine that the court order is qualifying. In that case, they will then issue a statement with regard to the effect that compliance will have on the account, as well as a description of the method by which any entitlement was calculated and the results of the calculation (as well as the circumstances under which payment will be made). It is important to note that the Thrift Savings Plan (TSP) will only make one disbursement under a court order, even if the court order on its face requires that a series of payments be made. Then, after payment has been made, the TSP account will be “unfrozen.” Click Here! Federal Retirement Made Easy! 1-888-919-3252 PSRE2022FedBenDiv | 12 psreducators.com • [email protected] • 888-919-3252
Where to Go from Here? Divorce can impact many different areas of your life. Because there can be many “moving parts” associated with federal employee benefits, it is recommended that you discuss your options with a financial advisor who is knowledgeable about the FERS and CSRS programs. If you would like to set up a time to talk with a retirement income specialist, please contact us directly by phone at 888-919-3252 or via email at [email protected] We look forward to helping you better understand your alternatives during this time of change. Public Sector Retirement Educators, LLC (PSRE) (www.PSREducators.com), is a government contractor (DUNS:080670431, CAGE:7ZEB0, UEID:JBDWEDVYLQJ1) and provides education and training on federal retirement benefits to federal agencies, unions, organizations and individuals. PSRE is not affiliated, endorsed, or sponsored by any government agency. By requesting information or providing your contact information on the attached form, you authorize PSRE to share any information you provide with professional(s) of PSRE’s selection (“Affiliates”), and you are expressly requesting a phone call, email, or text message (Standard data rates may apply). Text STOP to opt-out), from PSRE and these Affiliates. Affiliates are licensed financial professionals who have attested to providing interested federal employees a complimentary, no-obligation, Benefits Review. Should you request an appointment with the Affiliate to discuss financial products, you further acknowledge any products offered are independent of and ancillary to the services provided by PSRE. PSRE is not a broker-dealer, investment advisory firm, an insurance company, or agency and does not provide investment or insurance-related advice or recommendations. By requesting a Benefits Review, you further acknowledge your acceptance of PSRE’s Terms of Service and Privacy Policy (www.psreducators.com/privacy-policy/). To use this form or any of the services performed by PSRE or Affiliates, you agree to hold PSRE and its employees and executives harmless for any action taken or not taken by you as a result of your interpretation of your Benefits Review or your interaction with Affiliates. Navigate Your Federal Retirement 1-888-919-3252 LEARN MORE PSRE2022FedBenDiv | 13 psreducators.com • [email protected] • 888-919-3252
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